Ratings agencies have differing views on Rutgers bonds

By Beth Fitzgerald,
August 16, 2013 at 12:20 PM

(NJBIZ file)

Rutgers University's July 1 takeover of most of the state's medical schools played a role in the state university getting a “stable” outlook on its debt from Fitch Ratings and a “negative” outlook from Standard & Poor's.

The two debt rating agencies this week both assigned AA-minus ratings to bonds being issued by the state Economic Development Authority on behalf of Rutgers.

Fitch rated $238.9 million of bonds to finance four construction projects now underway at the university's College Avenue campus, in New Brunswick — an academic building, two residence halls and a parking facility. S&P also rated the bonds for the College Avenue projects.

Rutgers spokesman E.J. Miranda said the redevelopment work is a public-private partnership between Rutgers and the New Brunswick Development Corp. He said the project is receiving more than $82 million in state grants and tax credits, and is expected to generate more than 1,000 construction jobs.

Fitch said it could raise its rating in the future, contingent on "successful integration (of UMDNJ) demonstrated by a trend of break-even or better financial performance."

S&P credit analyst Ken Rodgers said in a statement that the Rutgers rating and negative outlook "reflect our belief that Rutgers faces increased operational, financial and credit risk from the recent assumption of almost 72 percent of the assets — and related liabilities — of the former University of Medicine and Dentistry of New Jersey."

Rodgers said Rutgers "has limited financial flexibility at its present rating level" and, "While we expect Rutgers student demand to remain strong, we also believe that there isn't likely to be any meaningful improvement in key financial resource metrics."

Fitch said Rutgers "has a track record of positive operating margins, sound balance sheet liquidity and moderate financial leverage, although these metrics will be pressured following the integration (of UMDNJ) as financial leverage has increased and near-term operating performance weakening is anticipated."

Fitch said Rutgers assumed $503 million of UMDNJ debt. Fitch said the takeover of UMDNJ "is expected to raise Rutgers' profile, with the addition of various medical schools, and add to its enrollment base and research portfolio."